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Stay or Stray

January 2014

Introduction

Client retention and attrition are metrics to which every financial advisor who wants to grow his or her business needs to pay close attention. Whether planning for growth, succession or simply increased productivity, every advisor needs to have a solid grasp of which client relationships are durable (and are likely to persist) and an understanding of which relationships are at greater risk. This issue of PriceMetrix Insights helps advisors distinguish between the two. Its central questions are:

What are the characteristics of clients who are more likely to stay with their advisor?

What are the characteristics of advisors who are able to retain a high proportion of their clients?

In order to shed light on retention and attrition, we analyze data for clients (and advisors) from 2009 to 2013. The answers we provide give advisors a clearer picture of the opportunities and risks inherent in their books of business represented by client retention and attrition. Some of the key findings that emerge are:

The most critical time period for advisors to focus on client retention and attrition risk is from the one-year mark to the four-year mark in a client relationship.

Small clients are less likely to stay with their advisor. Further, having an excess number of small clients in a book can negatively affect the retention of other clients.

The client relationships least likely to be retained are low-priced fee-only relationships and high-priced transactional-only relationships.

In terms of retaining clients, the industry-wide “transition” to fee is most advantageously approached as the addition of fee to transaction, where clients hold both types of accounts.

There is no one price that optimizes client retention, rather a range of prices. Still, advisors can undermine perceptions of value by pricing too low or price themselves out of client business by pricing too high. Both lower the prospect of retaining a client.

At the same time, despite advisor perceptions, large clients display less price sensitivity than small clients.

Older clients are more likely to stay. Younger clients are more likely to leave.

This Insights paper is made possible by PriceMetrix aggregated data representing 7 million retail investors, 500 million transactions, and over $3.5 trillion in investment assets. PriceMetrix combines its patented process for collecting and classifying data with proprietary measures of revenue, assets, and households to create the most insightful and granular retail wealth management database available today.